Managers have been focusing their Chinese portfolios towards domestic stocks, which are benefiting f...
Managers have been focusing their Chinese portfolios towards domestic stocks, which are benefiting from the rise in consumer wealth.
Jupiter, F&C and Aberdeen have all positioned their portfolios to be overweight stocks that will benefit from an increase in consumer spending.
Philip Ehrmann, manager of the Jupiter China fund, says: "We are now entering the second stage of growth as China shifts from being export focused toward the domestic market. The government is increasing investment in infrastructure projects, driving forward agricultural reforms, increasing healthcare and education spending and reducing pollution. As a result there has been a rise in middle income families, which are starting to spend money on consumer stocks.
"The government has also been active in pushing through financial reforms giving the private sector greater access to capital and financial services. The number of non-performing loans in the banking system has been dramatically cut."
In May, Mark Williams, fund manager of the F&C Pacific Growth fund, began increasing exposure to domestic stocks because GDP growth is forecast to remain between 8%-10%. One area which he believes consumers will spend money on as they become wealthier and save is financial products. For these reasons he is invested in China Life Insurance and finance group China Merchant.
Aberdeen also favours financials because a number of companies are about to undergo initial public offerings (IPOs), which should see their share price rise.
Flavia Cheong, senior investment manager, Asian equities at Aberdeen says insurers Ping An and China Life are seeking a mainland listing, while Industrial & Commercial Bank of China would be the first company to simultaneously list on both the Chinese and Hong Kong stock exchanges.
On the consumer side, Cheong sees growth potential in China Mobile. She explains the company has been adding around three million subscribers a month, is highly cash generative and has a strong balance sheet.
Williams also believes money will be spent on food goods as new producers enter the market. He is invested in soft drink manufacturer Ting Yi because the company has the distribution capabilities to market itself across the country. He says: "As the country develops and consumers become exposed to more advertising, they are likely to shift their consumption habits. A company with a strong brand name such as Ting Yi that can market itself effectively will benefit."
Another theme for Williams has been infrastructure as the country rebuilds itself from an agriculture economy to a developed nation. "We have been investing in companies that are suppliers of basic materials such as copper refiner Jiangxi," he says. "We favour this company because demand for copper is high as it is used to help build infrastructure. It should perform well because approximately 25% of world demand for copper comes from China."
Williams is also invested in vehicle producer China Infrastructure Machinery because he believes it will benefit from the nation's development. He says: "The company produces wheel loader vehicles needed in building infrastructure. It is trading at a discount of 11 times earnings compared to the market average of around 13 times."key points
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